The U.S. Securities and Exchange Commission has charged a former Palo Alto owner of several defunct investment entities with fraud for allegedly reselling nearly $900,000 of stock shares owned by eight investors to four other people.
They did not know of each others' deal, according to a civil complaint filed on Dec. 2 in the U.S. District Court, Northern District of California.
Vinay Kumar Nevatia, 46, whose last known address is on Waverley Street, allegedly resold the already purchased stocks of an off-shore company, CSS Technologies (Mauritius) Limited. The company is privately held and provides remote information-technology infrastructure and support services to businesses.
Nevatia, who is listed as having at least eight aliases, allegedly first bought shares in CSS Technologies for the group of investors in 2008. He touted the company as an exclusive pre-IPO opportunity. But he is not individually registered with the Securities and Exchange Commission (SEC), and he has never been licensed to trade securities, according to the SEC.
The complaint, filed in federal court in San Francisco, asks for an injunction preventing him from continuing to sell securities and to return the money he obtained through the schemes, plus interest, and to pay penalties.
According to court documents, Nevatia allegedly sought out investors and raised money to purchase the shares in CSS, where he personally knew one of the company's founders. He told the investors that shares were only available to persons such as himself with personal company connections.
On Aug. 8, 2008, he purchased 179,000 ordinary shares of CSS stock through VRSBS, an entity he formed to buy the shares. He allegedly told investors he had to purchase the stock through a single entity to simplify the transaction for the seller, according to court papers.
Investors contributed $899,500 for VRSBS to purchase the shares. Nevatia contributed $25,000 of the total, with the eight investors paying in $874,500, according to the SEC.
Under the agreement, as the managing member, Nevatia was to provide members with a description of terms of any sale. He was prohibited from commingling the proceeds with his personal accounts, according to court papers. Each investor also received individual stock certificates in order to control future sales of his or her shares.
But in November 2011, Nevatia allegedly resold half the shares to three directors of a San Mateo venture capital firm. He did not notify the original investors, and the venture capitalists did not know about the original stock owners, according to court documents. The venture capitalists paid VRSBS $359,800 for 89,950 shares of CSS Technologies. Nevatia allegedly told the venture capitalist the shares were his.
The venture capitalists requested the stock certificates, but Nevatia allegedly said new certificates needed to be issued; all of his shares were held on a single certificate, which covered a greater number of shares than the amount they had purchased.
On Feb. 16, 2012, Nevatia allegedly resold another 25,000 shares to two of the venture capitalists for $100,000. Then on Feb. 22, 2012, he resold another 60,000 shares for $195,000 to a Cayman Islands private equity fund managed out of Hong Kong, according to the complaint.
Nevatia allegedly instructed the two venture capitalists to wire their payment to a bank account under his sole control and received a $100,000 wire transfer on Feb. 17, 2012. The Cayman Islands private equity fund purchaser then wired $195,000 to the original investors' VRSBS account on Feb. 24.
But one week later, Nevatia allegedly transferred all but $500 of that money to his personal account. He never distributed any of the money to the original investors, nor notified them of the sales. He eventually sold off all of the original investors' shares, according to the SEC.
Nevatia's alleged ruse hit a snag when the CSS Technologies' transfer agent would not issue any new certificates until the originals were returned for cancellation. But Nevatia was not deterred. He allegedly told the agent that all of the original stock certificates had been lost. On Sept. 10, 2012, he signed an "indemnity for lost share certificates," which he sent to the transfer agent and the venture capital firm's chief financial officer. The transfer agent then issued new stock certificates.
The scheme began to unravel when some of the original investors contacted CSS Technologies directly in July 2013. Confronted, Nevatia told the investors that he had not actually sold the shares but only temporarily transferred them as a safeguard from his creditors. In August 2013, he allegedly pretended to restore an original investor's shares through a fake stock transfer from two fictitious shareholders, according to the SEC.
On Dec. 3, a summons directed to his Palo Alto address was returned unexecuted, according to court documents. Nevatia resided in Palo Alto from 2004 and 2013, allegedly using several aliases, including Vinay Kumar, Vinay Nevatia, Vinay Nivatia, Vinay K. Kumar, Kumar K., Vinay Kumar Srinivasan, Vinay Srinivasan and Kumar Mangakam Kumar, according to the complaint.
From 2007 through 2013, he solicited real estate and securities investments through numerous businesses he owned, including KBR Capital Markets, LLC; KBR Capital Partners, Inc.; KBR Capital Partners, LLC; and KBR Fund, LP, which he operated out of San Mateo offices and his Palo Alto residence. Prior to this period, he was employed in the San Francisco Bay Area as an executive-search consultant.
Nevatia could not be reached for comment. A criminal indictment has not been filed at this time, according to online court records.